Foreign firms seek action from China's new leaders

Article by: CHRISTOPHER BODEEN

Associated Press

March 29, 2013 - 4:13 AM

BEIJING
- Foreign companies in China say they want the country's new leadership to act on pledges to reduce bureaucracy and remove investment barriers as the business climate gets tougher, the American Chamber of Commerce in China said Friday.

Results of a survey of 325 businesses conducted by the chamber show just 28 percent see China's investment environment improving, down from 43 percent a year earlier.

Although 78 percent were optimistic about business in China over the next two years, only 18 percent said they planned to substantially expand their investments in the coming 12 months, down from one-third in the year before.

Slower economic growth, market barriers and government restrictions were the main reasons for the more modest investment plans, while rising labor costs were also a concern, according to the survey conducted in November and December of last year. Foreign companies have had to contend with double-digit percentage growth in salaries and benefits for their workers over the past two years, while the cost of land and raw materials have also shot up.

Chamber President Christian Murck said companies were encouraged by recent statements from leaders such as Premier Li Keqiang's pledge to reduce the number of approvals needed for investments by one-third, but that real action is now needed.

"Overall, it's a hopeful time despite the challenges. We have a new leadership, we have an economy that is performing pretty well," Murck said. "We all feel that there is a very broad understanding of the issues at the senior levels of the Chinese government, and we are hopeful that we will begin to see a more direct focus on action."

Doing business in China has grown tougher with economic growth in the world's second largest economy slowing from the torrential pace of past decades to 7.6 percent in 2012, the lowest level in three years. However, opportunities remain strong for the 71 percent of companies surveyed who are targeting the Chinese domestic market directly and annual foreign direct investment continues to top $100 billion.

That's despite evidence that China's economic opening has stalled in recent years and foreign companies "have not felt over the last four or five year that there have been commercially significant positive changes in the business environment or the investment environment," Murck said. As China continues to develop into a more mature economy, a failure to proceed with new policies would cause it to lose momentum and start "almost effectively moving backward," he said.

Survey respondents, mainly senior-level country managers, also expressed concerns about cybersecurity, with just over one quarter reporting that data had been accessed or stolen. Although there was no direct indication that the breaches originated within China, numerous reports have pointed to extensive Chinese commercial hacking, some of it allegedly government directed.

Questioned about the survey finding, a Chinese Foreign Ministry spokesman said accusations of hacking against China frequently had political overtones.

"To make accusations against China without investigation or proof is absolutely irresponsible behavior," Hong Lei said at a regularly scheduled news conference.

Businesses in the survey were also increasingly gloomy about China's protection of copyrights and patents, with 72 percent saying measures to protect intellectual property were ineffective. However, 47 percent said they had noticed an improvement in intellectual property rights enforcement over the past five years, against just nine percent who saw a deterioration

More than half considered China's strict Internet censorship an impediment to doing business, while almost three-quarters said slow or unstable Internet access hurt their business efficiency.

The survey did not publish results for quality of life issues, although Murck said Beijing's much-publicized air pollution woes could be affecting the willingness of some business executives to take up positions in the Chinese capital.

An unprecedented spell of extremely heavy pollution in January had been a "tipping point" for some, especially those with young children, Murck said.

He said he knew of "many people" who were planning to leave as a result.